How Grasshopper Grows By Creating New Companies

Leigh Buchanan is an editor-at-large for Inc. magazine. A former editor at Harvard Business Review and founding editor of Webmaster Magazine, she writes regular columns on leadership and workplace culture.

Siamak Taghaddos isn't sure how many distinct product lines he'll need to reach his goal: to serve one million business owners. Could be three, could be seven, could be 20 or more. So Taghaddos would like to see Grasshopper, the virtual phone-system company he founded with David Hauser in 2003, pump out two or three new companies a year. Toward that end Grasshopper, a $12 million business based in Needham, Massachusetts, has reimagined itself as an umbrella for multiple startups and established Grasshopper Labs, an R&D team focused on standalone products that may eventually become companies. To be considered, ideas emerging from the Labs or from the brains of Grasshopper employees must be disruptive, simple, capital-efficient, self-sustaining, scalable, and 'buzzable.' (A separate R&D group tends to Grasshopper's core phone system.)

Grasshopper's first new venture, Chargify, is in most ways typical of how Siamak and Hauser expect their spin-off engine to work. The company, which sells a Web application for customer billing, is virtual, with programmers scattered around the U.S. and in Brazil. 'When we started Grasshopper, cloud-based computing and virtual tools hadn't developed to the place they have now,' says Taghaddos. 'We can use the virtual model for the new businesses so we can keep startup costs low and get the best people, wherever they happen to be.' Chargify's CEO, Lance Walley, lives in Sacramento, California; Taghaddos and Hauser recruited him for his experience raising venture capital as founder of the cloud computing company Engine Yard, and also for what Taghaddos calls his 'passion for billing.'

Taghaddos plans to run Grasshopper's second spin-off—a buzz-marketing service called Spreadable—himself until it becomes big enough to need its own executive team. At that point he expects someone at Grasshopper will be ready to take over. For subsequent companies, Grasshopper will mint CEOs by providing insiders with the necessary training or hire outsiders, depending on the challenges each spin-off presents. Grasshopper will retain a majority stake, although all the CEOs will receive equity.

Taghaddos prefers starting companies to simply multiplying Grasshopper's product lines because it allows him to create distinctive brands. Chargify, for example, whose mascot is an angry bull, targets Web 2.0 developers, who see themselves as a 'bad-ass' population, Taghaddos explains. Grasshopper clients are entrepreneurs from every industry, so that brand's look and feel are more subdued. Spreadable is playful: appropriate for a buzz marketing firm.

As a vendor to entrepreneurs, Grasshopper encourages employees with ideas for startups outside the company's market to strike out on their own. One or two are openly developing businesses on their personal time, which is fine with Taghaddos, who cheerfully advises them. But he hopes the opportunities the new spinoffs present will keep most people down on the farm. 'There's nothing better than starting something: turning an idea into a huge company,' he says. 'Except doing it with the support of a multimillion company backing you up.'

Note: A previous version of this article misspelled founder Siamak Taghaddos' name.